There are many ways to get the best car loan, and these include some thought and planning in advance. It’s easy to simply to tell people to shop around, but this is a rather simplistic explanation. There are ways to prepare for getting the best car loan once you have found the car you want.
First, the best car loan can only be had with the best credit. If credit rating is below 680, or in some cases even 700, expect to pay rates over prime rate when obtaining a loan. Since higher interest rates mean paying more money for a car, it can be prudent to plan in advance by improving your credit score. This could mean making sure that all credit obligations are paid on time for at least six months to a year. It also means working on clearing up any bad marks on credit reports.
Assessment of creditworthiness may factor in length of employment. People who have had the same job for over a year tend to get better interest rates. Another important consideration is debt to credit ratio. If current debts are high, pay these down so that credit rating shows more available credit, at least 50% and ideally at least 70%.
Within this pre-planning matrix, consider exactly how much to pay for a car. Monthly payments should be very affordable, and income should show ability to easily pay them. Don’t buy a BMW® on a Hyundai® budget, for instance. Some lenders may question ability to make very high payments that seem unreasonable with lower income.
Another important step can be saving money for a down payment. Lenders view higher down payments favorably. Though many loans offer 100% financing, this may come at a cost of a few interest percentage points, and it has some disadvantages. New car loans at 100% financing immediately become upside down loans as soon as the person purchases the car. Figuring the automatic decrease in value when the car is purchased can help in determining the amount of the down payment. If necessary, look at the Kelley Blue Book rates for used and new cars in the model desired to find out how much a new car decreases in price when sold and to help determine down payment.
It’s also important not to add money to the loan by trading in a car that is in an upside down state. Borrowing more money than the price of the car is usually not ideal, and should be avoided when people are searching for the best car loan. If needed, work to get the present car loan out of an upside down state prior to trading it in. Sometimes selling the car privately will pay off the loan; whereas using it as a trade-in at a dealer won’t.
Lastly, shop around for the best car loan. Don’t assume the credit offered from a car dealer is the best deal. People who belong to credit unions might want to look for loans there, as they may be the best place to find them.
Others can do price comparisons with various banks, but may ultimately find the best car loan online. With excellent credit, proven ability to pay payments, and a sizable down payment, most potential borrowers may find lenders that will compete for their business. Even when credit is imperfect, shopping around is still important to find the best rates and the most attractive offers.